Important Notice

Thanks to all the sponsors - trade show participants and attendees we had a great 71st Annual Convention

Important Notice!

New Reporting Requirements for

Payors of Oil & Gas Revenue

A significant change to reporting requirements for all payors of oil and natural gas revenue was enacted by the 2006 Kansas Legislature. HB 2673 amended K.S.A. 55-1620 to change the amount of information to be provided to royalty owners upon their request. HB 2673 was a bill reflecting the compromises reached between industry and royalty owners in lieu of making changes to the information that must be provided on the check stub attached to revenue payments.

One component of the new legislation requires payors of oil and natural gas revenue to send an annual notice to royalty owners informing them of their rights to ask for information, including information on the price received for the sale of oil and natural gas. The first notice under the new law is due to be mailed no later than December 31, 2006. The notice must be mailed at least once every twelve (12) months thereafter. The statement required to be provided to royalty owners is defined in new Section 2 of HB 2673 as follows:

“Section 55-1622 of the Kansas Statutes Annotated gives an owner of royalty interest in oil and gas produced in Kansas the right to specifically request any of the following information from a payor about the owner’s royalty payment and the wells for which payment is made:

(1) Each lease, property or well identification number used by the payor for royalty payment purposes and corresponding lease, property or well identification number(s) used for identification by the Kansas department of revenue, state corporation commission or American petroleum institute (API).

(2) Each lease, property or well name and its corresponding section, township, range and county.

(3) The field name or producing formation.

(4) For a given sales period for which payment has been received or is due the royalty owner, the total produced volume as reported for each well, lease or unit to the state corporation commission and department of revenue.

(5) A specific listing of the amount and purpose of any other deductions or adjustments from the royalty owner’s share of the sale of oil and gas not identified on the payment statement.

(6) Whether any payments reported on the payor’s statement are from a split-stream sale and, if so, the manner in which the payor accounts to the royalty owner for such sale. As used in this paragraph, “split-stream sale” means a sale for which the payment for a payor to the royalty owner is for the sale of less than all of the oil and gas produced and sold from the lese or well for the sales period.

(7) Whether the sale of any of the production for which payment is made by payor has been made to an affiliate of the payor. As used in this paragraph, “affiliate” means any entity which, directly or indirectly, controls or is controlled by, or is under common control with, the payor.

The request by the royalty owner must be made in writing, specifying the information desired and the sales period or periods for which information is needed, and must be made by certified mail. The payor must respond to such a request by certified mail not later than the 60^th day after the date the request is received. A payor shall not be required to (1) provide any information on behalf of multiple royalty owners, (2) provide any information for sales periods which were prior to the 12-month period immediately preceding the first day of the month in which the request was received, except that, if adjustments to a royalty owner’s payment have been made within such 12-month period for sales periods prior to such 12-month period, information concerning such adjustments shall be provided and (3) seek information from other payors or third parties.

If a payor does not have any of the information requested by a royalty interest owner in accordance with this law, the payor shall provide to the royalty owner the name and address of the seller of the production for which the royalty owner is being paid by payor. A royalty owner may thereafter request from the seller the information not provided by the payor and the seller shall respond to the royalty owner, all in the same manner as provided for in this law. As used in this paragraph, “seller” means the lessee of the oil and gas lease from which a royalty owner derives it royalty interest or the operator of the oil and gas production unit which produced the oil and gas for which payment is being made.

This law is not meant to discourage or prohibit the royalty owner from contacting the payor by telephone, email or other means of communication concerning the above information or any other information about the owner’s royalty payment. Additional information regarding producing and related information may also be obtained by contacting the state corporation commission or Kansas geological survey, or by accessing their websites.”

All payors of oil and natural gas revenue to royalty owners should make themselves aware of HB 2673. Please contact the KIOGA Wichita Office at 316-263-7297 if you need a copy of HB 2673. Failure by industry to comply with this new law will likely result in a renewed effort to force information to be included to every royalty owner with each check.

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Last modified: 10/09/08